Outsourcing IT To China. Fear Not?

Just read a post on the Computer Weekly Blog entitled, “Would you offshore your IT to China?” (h/t to the China Outsourcing Blog). The post talks quite a bit about US listed Chinese outsourcing company, VanceInfo and its recent merger of equals with HiSoft to form Pactera Technology International. My firm has represented VanceInfo for many years so I am going to remain silent on the merger, but that representation has given me a somewhat inside look at how China is perceived as a destination for IT outsourcing.

The Computer Weekly article also polls its readers as to whether they would outsource their IT to China and at this point the yes votes are tied 1-1 with the no votes. What I find fascinating is how many companies are so much slower to outsource to China than they are to India and their explanation for that is often something along the lines of how China is the wild wild west or that it has no IP laws. The funny thing about this is that each year the US Trade Department does a priority watch list of the worst countries on IP protection and each year both India and China (and Russia too) are on that list, usually made up of about ten countries. And when it comes to handling commercial disputes, China consistently does quite well in the World Bank ratings (top 20), whereas India is always very near the bottom. Now I am not saying that these statistics mean that China is safer than India for outsourcing (especially since I am of the view that in the end the best analysis is by company, not by country), but I am saying that the fears regarding China are exagerated, at least as compared to India.

Of course, for all I know, the poll results for India would have been similar, but I do not think so.

What do you think? Would you outsource your IT to China? Are you already outsourcing IT to China? Are you any more or less willing to outsource your IT to China than to India?

Dan Harris is internationally regarded as a leading authority on legal matters related to doing business in China and in other emerging economies in Asia. Forbes Magazine, Business Week, Fortune Magazine, BBC News, The Wall Street Journal, The Washington Post, The Economist, CNBC, The New York Times, and many other major media players, have looked to him for his perspective on international law issues.

Interesting stats — but not sure it influences any of the current perspectives or concerns. In a nutshell there are 3 primary concerns, IP protection, data privacy, and English as a 2nd language. From my travels to both regions, it is much harder to communicate in English when in China compared to India.

goosemcgoose

The US Trade Department’s list is a joke written by corporate lobbyists, Canada is also on it. Do companies also stay away from doing business there because of IP issues?

Regardless of how well China does with solving commercial disputes vis a vis other countries, it is continually presented in western media as being a place where the laws are bent to serve those with power/money/guanxi. Also it just happens to be in the media a whole lot more than most other countries. India, not so much.

my concern with outsourcing IT to China would not be IP protection. It’s the overeducated, under talented paradigm. From what I’ve gathered albeit not first hand there’s heaps of education (most post doctorates in the world), limited experience in the workplace and zero creativity. You have to spec everything to the enth degree and god forbid you want to change anything!

steven.hall@tpi.net

Ken, great hearing from you and I agree with the positioning to gain access to Asian markets. This is certainly effective from a manufacturing perspective, but we have not seen access to markets as a key driver in IT or ADM outsourcing deals. There are several cases studies though in the BPO space, where this was a driver. I think access to the engineering talent in Chnia that will be paramount and this will lead to broader sourcing opportunities (assuming the IP, data privacy, and English issues are mitigated).

Cindy Hsu

I actually have a similar question about outsourcing to Taiwan, which is rarely considered by US companies, despite the lower wages (often comparable or lower than than their Chinese peers given the recent salary hike in China), greater English ability, better IP protection, and overall just a better place (safer food and environment) than both China and India. A friend of mine who has been the VP of Engineering for several tech startups used to fly to India every other month. When he joined his current company, he persuaded the CEO to set up their IT in Taiwan and now he’s convinced that Taiwan is the hidden gem for IT outsourcing. Is it just ignorance or is there something else stopping companies from considering this option?

No doubt China BPO industry has shown a tremendous progress in past decade. China has emerged as an outsourcing hub offering greater quality,low costs and innovative process methodologies. Indeed China is going to give a really tough competition to other popular outsourcing destinations like Philippines and India.

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